Ra­jan warns against low rates world­wide

IN­DIA’S out­go­ing cen­tral bank chief Raghu­ram Ra­jan warned coun­tries against a rush to low in­ter­est rates as his ten­ure as gover­nor of the Re­serve Bank of In­dia came to an end.

Mr Ra­jan told the New York Times that cen­tral banks across the world would find it hard to raise rates again for fear this “would see growth slow down”.

The 53-year-old, who clashed with the In­dian govern­ment over the speed of cuts, said low in­ter­est rates should not be an al­ter­na­tive to re­forms that may be needed to boost growth.

In­ter­est rates are low across many ma­jor economies, in­clud­ing in the US, Europe, and Ja­pan – where rates are in neg­a­tive ter­ri­tory – but they have yet to stim­u­late a slug­gish global econ­omy.

“Of­ten when mone­tary pol­icy is re­ally easy, it [low in­ter­est rates] be­comes the resid­ual pol­icy of choice,” Mr Ra­jan said, adding that “other in­stru­ments of pol­icy” may be needed to en­cour­age eco­nomic growth.

Mr Ra­jan was widely cred­ited with bring­ing in­fla­tion down, sta­bil­is­ing the ru­pee and cre­at­ing a sta­ble en­vi­ron­ment for growth.

In a sep­a­rate in­ter­view with the Fi­nan­cial Times, Mr Ra­jan pre­dicted that his re­forms, in­clud­ing set­ting in­fla­tion tar­gets and tack­ling bad bank loans, would con­tinue.

“Broadly speak­ing, I think we have sort of un­frozen an older equi­lib­rium and moved the sys­tem to­wards a new equi­lib­rium. My sense is that mo­men­tum can­not be and will not be ar­rested,” he told the pa­per. –